G.R. No.
L-11658 February 15, 1918 If the same thing should have been sold to different vendees, the ownership shall be transfer to
LEUNG YEE, plaintiff-appellant,
vs.
FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, defendants-appellees.
Booram and Mahoney for appellant.
Williams, Ferrier and SyCip for appellees.
CARSON, J.:
The "Compaia Agricola Filipina" bought a considerable quantity of rice-cleaning machinery
company from the defendant machinery company, and executed a chattel mortgage thereon to
secure payment of the purchase price. It included in the mortgage deed the building of strong
materials in which the machinery was installed, without any reference to the land on which it
stood. The indebtedness secured by this instrument not having been paid when it fell due, the
mortgaged property was sold by the sheriff, in pursuance of the terms of the mortgage instrument,
and was bought in by the machinery company. The mortgage was registered in the chattel
mortgage registry, and the sale of the property to the machinery company in satisfaction of the
mortgage was annotated in the same registry on December 29, 1913.
A few weeks thereafter, on or about the 14th of January, 1914, the "Compaia Agricola Filipina"
executed a deed of sale of the land upon which the building stood to the machinery company, but
this deed of sale, although executed in a public document, was not registered. This deed makes
no reference to the building erected on the land and would appear to have been executed for the
purpose of curing any defects which might be found to exist in the machinery company's title to
the building under the sheriff's certificate of sale. The machinery company went into possession of
the building at or about the time when this sale took place, that is to say, the month of December,
1913, and it has continued in possession ever since.
At or about the time when the chattel mortgage was executed in favor of the machinery company,
the mortgagor, the "Compaia Agricola Filipina" executed another mortgage to the plaintiff upon
the building, separate and apart from the land on which it stood, to secure payment of the balance
of its indebtedness to the plaintiff under a contract for the construction of the building. Upon the
failure of the mortgagor to pay the amount of the indebtedness secured by the mortgage, the
plaintiff secured judgment for that amount, levied execution upon the building, bought it in at the
sheriff's sale on or about the 18th of December, 1914, and had the sheriff's certificate of the sale
duly registered in the land registry of the Province of Cavite.
At the time when the execution was levied upon the building, the defendant machinery company,
which was in possession, filed with the sheriff a sworn statement setting up its claim of title and
demanding the release of the property from the levy. Thereafter, upon demand of the sheriff, the
plaintiff executed an indemnity bond in favor of the sheriff in the sum of P12,000, in reliance upon
which the sheriff sold the property at public auction to the plaintiff, who was the highest bidder at
the sheriff's sale.
This action was instituted by the plaintiff to recover possession of the building from the machinery
company.
The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment in favor of
the machinery company, on the ground that the company had its title to the building registered
prior to the date of registry of the plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
the person who may have the first taken possession thereof in good faith, if it should be personal
property.
Should it be real property, it shall belong to the person acquiring it who first recorded it in the
registry.
Should there be no entry, the property shall belong to the person who first took possession of it in
good faith, and, in the absence thereof, to the person who presents the oldest title, provided there
is good faith.
The registry her referred to is of course the registry of real property, and it must be apparent that
the annotation or inscription of a deed of sale of real property in a chattel mortgage registry
cannot be given the legal effect of an inscription in the registry of real property. By its express
terms, the Chattel Mortgage Law contemplates and makes provision for mortgages of personal
property; and the sole purpose and object of the chattel mortgage registry is to provide for the
registry of "Chattel mortgages," that is to say, mortgages of personal property executed in the
manner and form prescribed in the statute. The building of strong materials in which the rice-
cleaning machinery was installed by the "Compaia Agricola Filipina" was real property, and the
mere fact that the parties seem to have dealt with it separate and apart from the land on which it
stood in no wise changed its character as real property. It follows that neither the original registry
in the chattel mortgage of the building and the machinery installed therein, not the annotation in
that registry of the sale of the mortgaged property, had any effect whatever so far as the building
was concerned.
We conclude that the ruling in favor of the machinery company cannot be sustained on the
ground assigned by the trial judge. We are of opinion, however, that the judgment must be
sustained on the ground that the agreed statement of facts in the court below discloses that
neither the purchase of the building by the plaintiff nor his inscription of the sheriff's certificate of
sale in his favor was made in good faith, and that the machinery company must be held to be the
owner of the property under the third paragraph of the above cited article of the code, it appearing
that the company first took possession of the property; and further, that the building and the land
were sold to the machinery company long prior to the date of the sheriff's sale to the plaintiff.
It has been suggested that since the provisions of article 1473 of the Civil Code require "good
faith," in express terms, in relation to "possession" and "title," but contain no express requirement
as to "good faith" in relation to the "inscription" of the property on the registry, it must be
presumed that good faith is not an essential requisite of registration in order that it may have the
effect contemplated in this article. We cannot agree with this contention. It could not have been
the intention of the legislator to base the preferential right secured under this article of the code
upon an inscription of title in bad faith. Such an interpretation placed upon the language of this
section would open wide the door to fraud and collusion. The public records cannot be converted
into instruments of fraud and oppression by one who secures an inscription therein in bad faith.
The force and effect given by law to an inscription in a public record presupposes the good faith
of him who enters such inscription; and rights created by statute, which are predicated upon an
inscription in a public registry, do not and cannot accrue under an inscription "in bad faith," to the
benefit of the person who thus makes the inscription.
Construing the second paragraph of this article of the code, the supreme court of Spain held in its
sentencia of the 13th of May, 1908, that:
This rule is always to be understood on the basis of the good faith mentioned in the first
paragraph; therefore, it having been found that the second purchasers who record their purchase
had knowledge of the previous sale, the question is to be decided in accordance with the
following paragraph. (Note 2, art. 1473, Civ. Code, Medina and Maranon [1911] edition.)
Although article 1473, in its second paragraph, provides that the title of conveyance of ownership
of the real property that is first recorded in the registry shall have preference, this provision must
always be understood on the basis of the good faith mentioned in the first paragraph; the
legislator could not have wished to strike it out and to sanction bad faith, just to comply with a
mere formality which, in given cases, does not obtain even in real disputes between third
persons. (Note 2, art. 1473, Civ. Code, issued by the publishers of the La Revista de los
Tribunales, 13th edition.)
The agreed statement of facts clearly discloses that the plaintiff, when he bought the building at
the sheriff's sale and inscribed his title in the land registry, was duly notified that the machinery
company had bought the building from plaintiff's judgment debtor; that it had gone into possession
long prior to the sheriff's sale; and that it was in possession at the time when the sheriff executed
his levy. The execution of an indemnity bond by the plaintiff in favor of the sheriff, after the
machinery company had filed its sworn claim of ownership, leaves no room for doubt in this
regard. Having bought in the building at the sheriff's sale with full knowledge that at the time of the
levy and sale the building had already been sold to the machinery company by the judgment
debtor, the plaintiff cannot be said to have been a purchaser in good faith; and of course, the
subsequent inscription of the sheriff's certificate of title must be held to have been tainted with the
same defect.
Perhaps we should make it clear that in holding that the inscription of the sheriff's certificate of
sale to the plaintiff was not made in good faith, we should not be understood as questioning, in
any way, the good faith and genuineness of the plaintiff's claim against the "Compaia Agricola
Filipina." The truth is that both the plaintiff and the defendant company appear to have had just
and righteous claims against their common debtor. No criticism can properly be made of the
exercise of the utmost diligence by the plaintiff in asserting and exercising his right to recover the
amount of his claim from the estate of the common debtor. We are strongly inclined to believe that
in procuring the levy of execution upon the factory building and in buying it at the sheriff's sale, he
considered that he was doing no more than he had a right to do under all the circumstances, and
it is highly possible and even probable that he thought at that time that he would be able to
maintain his position in a contest with the machinery company. There was no collusion on his part
with the common debtor, and no thought of the perpetration of a fraud upon the rights of another,
in the ordinary sense of the word. He may have hoped, and doubtless he did hope, that the title of
the machinery company would not stand the test of an action in a court of law; and if later
developments had confirmed his unfounded hopes, no one could question the legality of the
propriety of the course he adopted.
But it appearing that he had full knowledge of the machinery company's claim of ownership when
he executed the indemnity bond and bought in the property at the sheriff's sale, and it appearing
further that the machinery company's claim of ownership was well founded, he cannot be said to
have been an innocent purchaser for value. He took the risk and must stand by the
consequences; and it is in this sense that we find that he was not a purchaser in good faith.
One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot
claim that he has acquired title thereto in good faith as against the true owner of the land or of an
interest therein; and the same rule must be applied to one who has knowledge of facts which
should have put him upon such inquiry and investigation as might be necessary to acquaint him
with the defects in the title of his vendor. A purchaser cannot close his eyes to facts which should
put a reasonable man upon his guard, and then claim that he acted in good faith under the belief
that there was no defect in the title of the vendor. His mere refusal to believe that such defect
exists, or his willful closing of his eyes to the possibility of the existence of a defect in his vendor's
title, will not make him an innocent purchaser for value, if afterwards develops that the title was in
fact defective, and it appears that he had such notice of the defects as would have led to its
discovery had he acted with that measure of precaution which may reasonably be acquired of a
prudent man in a like situation. Good faith, or lack of it, is in its analysis a question of intention;
but in ascertaining the intention by which one is actuated on a given occasion, we are necessarily
controlled by the evidence as to the conduct and outward acts by which alone the inward motive
may, with safety, be determined. So it is that "the honesty of intention," "the honest lawful intent,"
which constitutes good faith implies a "freedom from knowledge and circumstances which ought
to put a person on inquiry," and so it is that proof of such knowledge overcomes the presumption
of good faith in which the courts always indulge in the absence of proof to the contrary. "Good
faith, or the want of it, is not a visible, tangible fact that can be seen or touched, but rather a state
or condition of mind which can only be judged of by actual or fancied tokens or signs." (Wilder vs.
Gilman, 55 Vt., 504, 505; Cf. Cardenas Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098;
Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.)
We conclude that upon the grounds herein set forth the disposing part of the decision and
judgment entered in the court below should be affirmed with costs of this instance against the
appellant. So ordered.
G.R. No. L-20329 March 16, 1923
THE STANDARD OIL COMPANY OF NEW YORK, petitioner,
vs.
JOAQUIN JARAMILLO, as register of deeds of the City of Manila, respondent.
Ross, Lawrence and Selph for petitioner.
City Fiscal Revilla and Assistant City Fiscal Rodas for respondent.
STREET, J.:
This cause is before us upon demurrer interposed by the respondent, Joaquin Jaramillo, register
of deeds of the City of Manila, to an original petition of the Standard Oil Company of New York,
seeking a peremptory mandamus to compel the respondent to record in the proper register a
document purporting to be a chattel mortgage executed in the City of Manila by Gervasia de la
Rosa, Vda. de Vera, in favor of the Standard Oil Company of New York.
It appears from the petition that on November 27, 1922, Gervasia de la Rosa, Vda. de Vera, was
the lessee of a parcel of land situated in the City of Manila and owner of the house of strong
materials built thereon, upon which date she executed a document in the form of a chattel
mortgage, purporting to convey to the petitioner by way of mortgage both the leasehold interest in
said lot and the building which stands thereon.
The clauses in said document describing the property intended to be thus mortgage are
expressed in the following words:
Now, therefore, the mortgagor hereby conveys and transfer to the mortgage, by way of mortgage,
the following described personal property, situated in the City of Manila, and now in possession of
the mortgagor, to wit:
(1) All of the right, title, and interest of the mortgagor in and to the contract of lease hereinabove
referred to, and in and to the premises the subject of the said lease;
(2) The building, property of the mortgagor, situated on the aforesaid leased premises.
After said document had been duly acknowledge and delivered, the petitioner caused the same to
be presented to the respondent, Joaquin Jaramillo, as register of deeds of the City of Manila, for
the purpose of having the same recorded in the book of record of chattel mortgages. Upon
examination of the instrument, the respondent was of the opinion that it was not a chattel
mortgage, for the reason that the interest therein mortgaged did not appear to be personal
property, within the meaning of the Chattel Mortgage Law, and registration was refused on this
ground only.
We are of the opinion that the position taken by the respondent is untenable; and it is his duty to
accept the proper fee and place the instrument on record. The duties of a register of deeds in
respect to the registration of chattel mortgage are of a purely ministerial character; and no
provision of law can be cited which confers upon him any judicial or quasi-judicial power to
determine the nature of any document of which registration is sought as a chattel mortgage.
The original provisions touching this matter are contained in section 15 of the Chattel Mortgage
Law (Act No. 1508), as amended by Act No. 2496; but these have been transferred to section 198
of the Administrative Code, where they are now found. There is nothing in any of these provisions
conferring upon the register of deeds any authority whatever in respect to the "qualification," as
the term is used in Spanish law, of chattel mortgage. His duties in respect to such instruments are
ministerial only. The efficacy of the act of recording a chattel mortgage consists in the fact that it
operates as constructive notice of the existence of the contract, and the legal effects of the
contract must be discovered in the instrument itself in relation with the fact of notice. Registration
adds nothing to the instrument, considered as a source of title, and affects nobody's rights except
as a specifies of notice.
Articles 334 and 335 of the Civil Code supply no absolute criterion for discriminating between real
property and personal property for purpose of the application of the Chattel Mortgage Law. Those
articles state rules which, considered as a general doctrine, are law in this jurisdiction; but it must
not be forgotten that under given conditions property may have character different from that
imputed to it in said articles. It is undeniable that the parties to a contract may by agreement treat
as personal property that which by nature would be real property; and it is a familiar phenomenon
to see things classed as real property for purposes of taxation which on general principle might be
considered personal property. Other situations are constantly arising, and from time to time are
presented to this court, in which the proper classification of one thing or another as real or
personal property may be said to be doubtful.
The point submitted to us in this case was determined on September 8, 1914, in an administrative
ruling promulgated by the Honorable James A. Ostrand, now a Justice of this Court, but acting at
that time in the capacity of Judge of the fourth branch of the Court of First Instance of the Ninth
Judicial District, in the City of Manila; and little of value can be here added to the observations
contained in said ruling. We accordingly quote therefrom as follows:
It is unnecessary here to determine whether or not the property described in the document in
question is real or personal; the discussion may be confined to the point as to whether a register
of deeds has authority to deny the registration of a document purporting to be a chattel mortgage
and executed in the manner and form prescribed by the Chattel Mortgage Law.
Then, after quoting section 5 of the Chattel Mortgage Law (Act No. 1508), his Honor continued:
Based principally upon the provisions of section quoted the Attorney-General of the Philippine
Islands, in an opinion dated August 11, 1909, held that a register of deeds has no authority to
pass upon the capacity of the parties to a chattel mortgage which is presented to him for record.
A fortiori a register of deeds can have no authority to pass upon the character of the property
sought to be encumbered by a chattel mortgage. Of course, if the mortgaged property is real
instead of personal the chattel mortgage would no doubt be held ineffective as against third
parties, but this is a question to be determined by the courts of justice and not by the register of
deeds.
In Leung Yee vs. Frank L. Strong Machinery Co. and Williamson (37 Phil., 644), this court held
that where the interest conveyed is of the nature of real, property, the placing of the document on
record in the chattel mortgage register is a futile act; but that decision is not decisive of the
question now before us, which has reference to the function of the register of deeds in placing the
document on record.
In the light of what has been said it becomes unnecessary for us to pass upon the point whether
the interests conveyed in the instrument now in question are real or personal; and we declare it to
be the duty of the register of deeds to accept the estimate placed upon the document by the
petitioner and to register it, upon payment of the proper fee.
The demurrer is overruled; and unless within the period of five days from the date of the
notification hereof, the respondent shall interpose a sufficient answer to the petition, the writ of
mandamus will be issued, as prayed, but without costs. So ordered.
SERGS PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners, vs.
PCI LEASING AND FINANCE, INC., respondent.
DECISION
PANGANIBAN, J.:
After agreeing to a contract stipulating that a real or immovable
property be considered as personal or movable, a party is estopped
from subsequently claiming otherwise. Hence, such property is a
proper subject of a writ of replevin obtained by the other contracting
party.
The Case
Before us is a Petition for Review on Certiorari assailing the
January 6, 1999 Decision[if !supportFootnotes][1][endif] of the Court of Appeals
 (CA)[if !supportFootnotes][2][endif] in CA-GR SP No. 47332 and its February 26,
1999 Resolution[if !supportFootnotes][3][endif] denying reconsideration. The
decretal portion of the CA Decision reads as follows:
WHEREFORE, premises considered, the assailed Order dated February 18, 1998 and Resolution
dated March 31, 1998 in Civil Case No. Q-98-33500 are hereby AFFIRMED. The writ of
preliminary injunction issued on June 15, 1998 is hereby LIFTED.[if !supportFootnotes][4][endif]
In its February 18, 1998 Order,[if !supportFootnotes][5][endif] the
Regional Trial Court (RTC) of Quezon City (Branch 218)[if !supportFootnotes]
[6][endif] issued a Writ of Seizure.[if !supportFootnotes][7][endif] The March 18,
1998 Resolution[if !supportFootnotes][8][endif] denied petitioners Motion for
Special Protective Order, praying that the deputy sheriff be enjoined
from seizing immobilized or other real properties in (petitioners) factory
in Cainta, Rizal and to return to their original place whatever
immobilized machineries or equipments he may have removed.[if !
supportFootnotes][9][endif]
The Facts
The undisputed facts are summarized by the Court of Appeals
as follows:[if !supportFootnotes][10][endif]
On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCI Leasing for short) filed
with the RTC-QC a complaint for [a] sum of money (Annex E), with an application for a writ of
replevin docketed as Civil Case No. Q-98-33500.
On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge issued a writ of
replevin (Annex B) directing its sheriff to seize and deliver the machineries and equipment to PCI
Leasing after 5 days and upon the payment of the necessary expenses.
On March 24, 1998, in implementation of said writ, the sheriff proceeded to petitioners factory,
seized one machinery with [the] word that he [would] return for the other machineries.
On March 25, 1998, petitioners filed a motion for special protective order (Annex C), invoking the
power of the court to control the conduct of its officers and amend and control its processes,
praying for a directive for the sheriff to defer enforcement of the writ of replevin.
This motion was opposed by PCI Leasing (Annex F), on the ground that the properties [were] still
personal and therefore still subject to seizure and a writ of replevin.
In their Reply, petitioners asserted that the properties sought to be seized [were] immovable as
defined in Article 415 of the Civil Code, the parties agreement to the contrary notwithstanding.
They argued that to give effect to the agreement would be prejudicial to innocent third parties.
They further stated that PCI Leasing [was] estopped from treating these machineries as personal
because the contracts in which the alleged agreement [were] embodied [were] totally sham and
farcical.
On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take possession of the
remaining properties. He was able to take two more, but was prevented by the workers from
taking the rest.
On April 7, 1998, they went to [the CA] via an original action for certiorari.
Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held
that the subject machines were personal property, and that they had
only been leased, not owned, by petitioners. It also ruled that the words
of the contract are clear and leave no doubt upon the true intention of
the contracting parties. Observing that Petitioner Goquiolay was an
experienced businessman who was not unfamiliar with the ways of the
trade, it ruled that he should have realized the import of the document
he signed. The CA further held:
Furthermore, to accord merit to this petition would be to preempt the trial court in ruling upon the
case below, since the merits of the whole matter are laid down before us via a petition whose sole
purpose is to inquire upon the existence of a grave abuse of discretion on the part of the [RTC] in
issuing the assailed Order and Resolution. The issues raised herein are proper subjects of a full-
blown trial, necessitating presentation of evidence by both parties. The contract is being enforced
by one, and [its] validity is attacked by the other a matter x x x which respondent court is in the
best position to determine.
Hence, this Petition.[if !supportFootnotes][11][endif]
The Issues
In their Memorandum, petitioners submit the following issues
for our consideration:
A. Whether or not the machineries purchased and imported by SERGS became real property by
virtue of immobilization.
B. Whether or not the contract between the parties is a loan or a lease.[if !supportFootnotes][12][endif]
In the main, the Court will resolve whether the said machines
are personal, not immovable, property which may be a proper subject
of a writ of replevin. As a preliminary matter, the Court will also address
briefly the procedural points raised by respondent.
The Courts Ruling
 The Petition is not meritorious.
Preliminary Matter:Procedural Questions
Respondent contends that the Petition failed to indicate
expressly whether it was being filed under Rule 45 or Rule 65 of the
Rules of Court. It further alleges that the Petition erroneously
impleaded Judge Hilario Laqui as respondent.
There is no question that the present recourse is under Rule
45. This conclusion finds support in the very title of the Petition, which
is Petition for Review on Certiorari.[if !supportFootnotes][13][endif]
While Judge Laqui should not have been impleaded as a
respondent,[if !supportFootnotes][14][endif] substantial justice requires that such
lapse by itself should not warrant the dismissal of the present Petition.
In this light, the Court deems it proper to remove, motu proprio, the
name of Judge Laqui from the caption of the present case.
Main Issue: Nature of the Subject Machinery
Petitioners contend that the subject machines used in their
factory were not proper subjects of the Writ issued by the RTC,
because they were in fact real property. Serious policy considerations,
they argue, militate against a contrary characterization.
Rule 60 of the Rules of Court provides that writs of replevin are
issued for the recovery of personal property only.[if !supportFootnotes][15][endif]
Section 3 thereof reads:
SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond, the court shall issue
an order and the corresponding writ of replevin describing the personal property alleged to be
wrongfully detained and requiring the sheriff forthwith to take such property into his custody.
On the other hand, Article 415 of the Civil Code enumerates
immovable or real property as follows:
ART. 415. The following are immovable property:
x x x....................................x x x....................................x x x
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for
an industry or works which may be carried on in a building or on a piece of land, and which tend
directly to meet the needs of the said industry or works;
x x x....................................x x x....................................x x x
In the present case, the machines that were the subjects of the
Writ of Seizure were placed by petitioners in the factory built on their
own land. Indisputably, they were essential and principal elements of
their chocolate-making industry. Hence, although each of them was
movable or personal property on its own, all of them have become
immobilized by destination because they are essential and principal
elements in the industry.[if !supportFootnotes][16][endif] In that sense, petitioners
are correct in arguing that the said machines are real, not personal,
property pursuant to Article 415 (5) of the Civil Code.[if !supportFootnotes][17]
[endif]
Be that as it may, we disagree with the submission of the
petitioners that the said machines are not proper subjects of the Writ of
Seizure.
The Court has held that contracting parties may validly
stipulate that a real property be considered as personal.[if !supportFootnotes]
[18][endif] After agreeing to such stipulation, they are consequently
estopped from claiming otherwise. Under the principle of estoppel, a
party to a contract is ordinarily precluded from denying the truth of any
material fact found therein.
Hence, in Tumalad v. Vicencio,[if !supportFootnotes][19][endif] the Court
upheld the intention of the parties to treat a house as a personal
property because it had been made the subject of a chattel mortgage.
The Court ruled:
x x x. Although there is no specific statement referring to the subject house as personal property,
yet by ceding, selling or transferring a property by way of chattel mortgage defendants-appellants
could only have meant to convey the house as chattel, or at least, intended to treat the same as
such, so that they should not now be allowed to make an inconsistent stand by claiming
otherwise.
 Applying Tumalad, the Court in Makati Leasing and Finance
Corp. v. Wearever Textile Mills[if !supportFootnotes][20][endif] also held that the
machinery used in a factory and essential to the industry, as in the
present case, was a proper subject of a writ of replevin because it was
treated as personal property in a contract. Pertinent portions of the
Courts ruling are reproduced hereunder:
x x x. If a house of strong materials, like what was involved in the above Tumalad case, may be
considered as personal property for purposes of executing a chattel mortgage thereon as long as
the parties to the contract so agree and no innocent third party will be prejudiced thereby, there is
absolutely no reason why a machinery, which is movable in its nature and becomes immobilized
only by destination or purpose, may not be likewise treated as such. This is really because one
who has so agreed is estopped from denying the existence of the chattel mortgage.
In the present case, the Lease Agreement clearly provides that
the machines in question are to be considered as personal property.
Specifically, Section 12.1 of the Agreement reads as follows:[if !
supportFootnotes][21][endif]
12.1 The PROPERTY is, and shall at all times be and remain, personal property notwithstanding
that the PROPERTY or any part thereof may now be, or hereafter become, in any manner affixed
or attached to or embedded in, or permanently resting upon, real property or any building thereon,
or attached in any manner to what is permanent.
Clearly then, petitioners are estopped from denying the
characterization of the subject machines as personal property. Under
the circumstances, they are proper subjects of the Writ of Seizure.
It should be stressed, however, that our holding -- that the
machines should be deemed personal property pursuant to the Lease
Agreement is good only insofar as the contracting parties are
concerned.[if !supportFootnotes][22][endif] Hence, while the parties are bound by
the Agreement, third persons acting in good faith are not affected by its
stipulation characterizing the subject machinery as personal.[if !
supportFootnotes][23][endif] In any event, there is no showing that any specific
third party would be adversely affected.
Validity of the Lease Agreement
In their Memorandum, petitioners contend that the Agreement
is a loan and not a lease.[if !supportFootnotes][24][endif] Submitting documents
supposedly showing that they own the subject machines, petitioners
also argue in their Petition that the Agreement suffers from intrinsic
ambiguity which places in serious doubt the intention of the parties and
the validity of the lease agreement itself.[if !supportFootnotes][25][endif] In their
Reply to respondents Comment, they further allege that the Agreement
is invalid.[if !supportFootnotes][26][endif]
These arguments are unconvincing. The validity and the nature
of the contract are the lis mota of the civil action pending before the
RTC. A resolution of these questions, therefore, is effectively a
resolution of the merits of the case. Hence, they should be threshed
out in the trial, not in the proceedings involving the issuance of the Writ
of Seizure.
Indeed, in La Tondea Distillers v. CA,[if !supportFootnotes][27][endif] the
Court explained that the policy under Rule 60 was that questions
involving title to the subject property questions which petitioners are
now raising -- should be determined in the trial. In that case, the Court
noted that the remedy of defendants under Rule 60 was either to post
a counter-bond or to question the sufficiency of the plaintiffs bond.
They were not allowed, however, to invoke the title to the subject
property. The Court ruled:
In other words, the law does not allow the defendant to file a motion to dissolve or discharge the
writ of seizure (or delivery) on ground of insufficiency of the complaint or of the grounds relied
upon therefor, as in proceedings on preliminary attachment or injunction, and thereby put at issue
the matter of the title or right of possession over the specific chattel being replevied, the policy
apparently being that said matter should be ventilated and determined only at the trial on the
merits.[if !supportFootnotes][28][endif]
Besides, these questions require a determination of facts and a
presentation of evidence, both of which have no place in a petition for
certiorari in the CA under Rule 65 or in a petition for review in this
Court under Rule 45.[if !supportFootnotes][29][endif]
Reliance on the Lease Agreement
It should be pointed out that the Court in this case may rely on
the Lease Agreement, for nothing on record shows that it has been
nullified or annulled. In fact, petitioners assailed it first only in the RTC
 proceedings, which had ironically been instituted by respondent.
Accordingly, it must be presumed valid and binding as the law between
the parties.
Makati Leasing and Finance Corporation[if !supportFootnotes][30][endif] is also instructive on this point. In
that case, the Deed of Chattel Mortgage, which characterized the subject machinery as personal
property, was also assailed because respondent had allegedly been required to sign a printed
form of chattel mortgage which was in a blank form at the time of signing. The Court rejected the
argument and relied on the Deed, ruling as follows:
x x x. Moreover, even granting that the charge is true, such fact alone does not render a contract
void ab initio, but can only be a ground for rendering said contract voidable, or annullable
pursuant to Article 1390 of the new Civil Code, by a proper action in court. There is nothing on
record to show that the mortgage has been annulled. Neither is it disclosed that steps were taken
to nullify the same. x x x
Alleged Injustice Committed on the Part of Petitioners
Petitioners contend that if the Court allows these machineries
to be seized, then its workers would be out of work and thrown into the
streets.[if !supportFootnotes][31][endif] They also allege that the seizure would
nullify all efforts to rehabilitate the corporation.
Petitioners arguments do not preclude the implementation of
the Writ. As earlier discussed, law and jurisprudence support its
propriety. Verily, the above-mentioned consequences, if they come
true, should not be blamed on this Court, but on the petitioners for
failing to avail themselves of the remedy under Section 5 of Rule 60,
which allows the filing of a counter-bond. The provision states:
SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of the applicants
bond, or of the surety or sureties thereon, he cannot immediately require the return of the
property, but if he does not so object, he may, at any time before the delivery of the property to
the applicant, require the return thereof, by filing with the court where the action is pending a bond
executed to the applicant, in double the value of the property as stated in the applicants affidavit
for the delivery thereof to the applicant, if such delivery be adjudged, and for the payment of such
sum to him as may be recovered against the adverse party, and by serving a copy bond on the
applicant.
WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of Appeals
AFFIRMED. Costs against petitioners.
G.R. No. L-40411 August 7, 1935
DAVAO SAW MILL CO., INC., plaintiff-appellant,
vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendants-appellees.
Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for appellant.
J.W. Ferrier for appellees.
MALCOLM, J.:
The issue in this case, as announced in the opening sentence of the decision in the trial court and
as set forth by counsel for the parties on appeal, involves the determination of the nature of the
properties described in the complaint. The trial judge found that those properties were personal in
nature, and as a consequence absolved the defendants from the complaint, with costs against the
plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of the
Philippine Islands. It has operated a sawmill in the sitio of Maa, barrio of Tigatu, municipality of
Davao, Province of Davao. However, the land upon which the business was conducted belonged
to another person. On the land the sawmill company erected a building which housed the
machinery used by it. Some of the implements thus used were clearly personal property, the
conflict concerning machines which were placed and mounted on foundations of cement. In the
contract of lease between the sawmill company and the owner of the land there appeared the
following provision:
That on the expiration of the period agreed upon, all the improvements and buildings introduced
and erected by the party of the second part shall pass to the exclusive ownership of the party of
the first part without any obligation on its part to pay any amount for said improvements and
buildings; also, in the event the party of the second part should leave or abandon the land leased
before the time herein stipulated, the improvements and buildings shall likewise pass to the
ownership of the party of the first part as though the time agreed upon had expired: Provided,
however, That the machineries and accessories are not included in the improvements which will
pass to the party of the first part on the expiration or abandonment of the land leased.
In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the Davao,
Saw, Mill Co., Inc., was the defendant, a judgment was rendered in favor of the plaintiff in that
action against the defendant in that action; a writ of execution issued thereon, and the properties
now in question were levied upon as personalty by the sheriff. No third party claim was filed for
such properties at the time of the sales thereof as is borne out by the record made by the plaintiff
herein. Indeed the bidder, which was the plaintiff in that action, and the defendant herein having
consummated the sale, proceeded to take possession of the machinery and other properties
described in the corresponding certificates of sale executed in its favor by the sheriff of Davao.
As connecting up with the facts, it should further be explained that the Davao Saw Mill Co., Inc.,
has on a number of occasions treated the machinery as personal property by executing chattel
mortgages in favor of third persons. One of such persons is the appellee by assignment from the
original mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real property
consists of
1. Land, buildings, roads and constructions of all kinds adhering to the soil;
xxx xxx xxx
5. Machinery, liquid containers, instruments or implements intended by the owner of any building
or land for use in connection with any industry or trade being carried on therein and which are
expressly adapted to meet the requirements of such trade of industry.
Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We
entertain no doubt that the trial judge and appellees are right in their appreciation of the legal
doctrines flowing from the facts.
In the first place, it must again be pointed out that the appellant should have registered its protest
before or at the time of the sale of this property. It must further be pointed out that while not
conclusive, the characterization of the property as chattels by the appellant is indicative of
intention and impresses upon the property the character determined by the parties. In this
connection the decision of this court in the case of Standard Oil Co. of New York vs. Jaramillo
( [1923], 44 Phil., 630), whether obiter dicta or not, furnishes the key to such a situation.
It is, however not necessary to spend overly must time in the resolution of this appeal on side
issues. It is machinery which is involved; moreover, machinery not intended by the owner of any
building or land for use in connection therewith, but intended by a lessee for use in a building
erected on the land by the latter to be returned to the lessee on the expiration or abandonment of
the lease.
A similar question arose in Puerto Rico, and on appeal being taken to the United States Supreme
Court, it was held that machinery which is movable in its nature only becomes immobilized when
placed in a plant by the owner of the property or plant, but not when so placed by a tenant, a
usufructuary, or any person having only a temporary right, unless such person acted as the agent
of the owner. In the opinion written by Chief Justice White, whose knowledge of the Civil Law is
well known, it was in part said:
To determine this question involves fixing the nature and character of the property from the point
of view of the rights of Valdes and its nature and character from the point of view of Nevers &
Callaghan as a judgment creditor of the Altagracia Company and the rights derived by them from
the execution levied on the machinery placed by the corporation in the plant. Following the Code
Napoleon, the Porto Rican Code treats as immovable (real) property, not only land and buildings,
but also attributes immovability in some cases to property of a movable nature, that is, personal
property, because of the destination to which it is applied. "Things," says section 334 of the Porto
Rican Code, "may be immovable either by their own nature or by their destination or the object to
which they are applicable." Numerous illustrations are given in the fifth subdivision of section 335,
which is as follows: "Machinery, vessels, instruments or implements intended by the owner of the
tenements for the industrial or works that they may carry on in any building or upon any land and
which tend directly to meet the needs of the said industry or works." (See also Code Nap., articles
516, 518 et seq. to and inclusive of article 534, recapitulating the things which, though in
themselves movable, may be immobilized.) So far as the subject-matter with which we are
dealing machinery placed in the plant it is plain, both under the provisions of the Porto
Rican Law and of the Code Napoleon, that machinery which is movable in its nature only
becomes immobilized when placed in a plant by the owner of the property or plant. Such result
would not be accomplished, therefore, by the placing of machinery in a plant by a tenant or a
usufructuary or any person having only a temporary right. (Demolombe, Tit. 9, No. 203; Aubry et
Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. 447; and decisions quoted in Fuzier-Herman
ed. Code Napoleon under articles 522 et seq.) The distinction rests, as pointed out by
Demolombe, upon the fact that one only having a temporary right to the possession or enjoyment
of property is not presumed by the law to have applied movable property belonging to him so as
to deprive him of it by causing it by an act of immobilization to become the property of another. It
follows that abstractly speaking the machinery put by the Altagracia Company in the plant
belonging to Sanchez did not lose its character of movable property and become immovable by
destination. But in the concrete immobilization took place because of the express provisions of
the lease under which the Altagracia held, since the lease in substance required the putting in of
improved machinery, deprived the tenant of any right to charge against the lessor the cost such
machinery, and it was expressly stipulated that the machinery so put in should become a part of
the plant belonging to the owner without compensation to the lessee. Under such conditions the
tenant in putting in the machinery was acting but as the agent of the owner in compliance with the
obligations resting upon him, and the immobilization of the machinery which resulted arose in
legal effect from the act of the owner in giving by contract a permanent destination to the
machinery.
xxx xxx xxx
The machinery levied upon by Nevers & Callaghan, that is, that which was placed in the plant by
the Altagracia Company, being, as regards Nevers & Callaghan, movable property, it follows that
they had the right to levy on it under the execution upon the judgment in their favor, and the
exercise of that right did not in a legal sense conflict with the claim of Valdes, since as to him the
property was a part of the realty which, as the result of his obligations under the lease, he could
not, for the purpose of collecting his debt, proceed separately against. (Valdes vs. Central
Altagracia [192], 225 U.S., 58.)
Finding no reversible error in the record, the judgment appealed from will be affirmed, the costs of
this instance to be paid by the appellant.
G.R. No. L-17870 September 29, 1962
MINDANAO BUS COMPANY, petitioner,
vs.
THE CITY ASSESSOR & TREASURER and the BOARD OF TAX APPEALS of Cagayan de
Oro City, respondents.
Binamira, Barria and Irabagon for petitioner.
Vicente E. Sabellina for respondents.
LABRADOR, J.:
This is a petition for the review of the decision of the Court of Tax Appeals in C.T.A. Case No. 710
holding that the petitioner Mindanao Bus Company is liable to the payment of the realty tax on its
maintenance and repair equipment hereunder referred to.
Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner's above-
mentioned equipment. Petitioner appealed the assessment to the respondent Board of Tax
Appeals on the ground that the same are not realty. The Board of Tax Appeals of the City
sustained the city assessor, so petitioner herein filed with the Court of Tax Appeals a petition for
the review of the assessment.
In the Court of Tax Appeals the parties submitted the following stipulation of facts:
Petitioner and respondents, thru their respective counsels agreed to the following stipulation of
facts:
1. That petitioner is a public utility solely engaged in transporting passengers and cargoes by
motor trucks, over its authorized lines in the Island of Mindanao, collecting rates approved by the
Public Service Commission;
2. That petitioner has its main office and shop at Cagayan de Oro City. It maintains Branch
Offices and/or stations at Iligan City, Lanao; Pagadian, Zamboanga del Sur; Davao City and
Kibawe, Bukidnon Province;
3. That the machineries sought to be assessed by the respondent as real properties are the
following:
(a) Hobart Electric Welder Machine, appearing in the attached photograph, marked Annex "A";
(b) Storm Boring Machine, appearing in the attached photograph, marked Annex "B";
(c) Lathe machine with motor, appearing in the attached photograph, marked Annex "C";
(d) Black and Decker Grinder, appearing in the attached photograph, marked Annex "D";
(e) PEMCO Hydraulic Press, appearing in the attached photograph, marked Annex "E";
(f) Battery charger (Tungar charge machine) appearing in the attached photograph, marked
Annex "F"; and
(g) D-Engine Waukesha-M-Fuel, appearing in the attached photograph, marked Annex "G".
4. That these machineries are sitting on cement or wooden platforms as may be seen in the
attached photographs which form part of this agreed stipulation of facts;
5. That petitioner is the owner of the land where it maintains and operates a garage for its TPU
motor trucks; a repair shop; blacksmith and carpentry shops, and with these machineries which
are placed therein, its TPU trucks are made; body constructed; and same are repaired in a
condition to be serviceable in the TPU land transportation business it operates;
6. That these machineries have never been or were never used as industrial equipments to
produce finished products for sale, nor to repair machineries, parts and the like offered to the
general public indiscriminately for business or commercial purposes for which petitioner has
never engaged in, to date.1awphl.nt
The Court of Tax Appeals having sustained the respondent city assessor's ruling, and having
denied a motion for reconsideration, petitioner brought the case to this Court assigning the
following errors:
1. The Honorable Court of Tax Appeals erred in upholding respondents' contention that the
questioned assessments are valid; and that said tools, equipments or machineries are immovable
taxable real properties.
2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of the New Civil Code,
and holding that pursuant thereto the movable equipments are taxable realties, by reason of their
being intended or destined for use in an industry.
3. The Court of Tax Appeals erred in denying petitioner's contention that the respondent City
Assessor's power to assess and levy real estate taxes on machineries is further restricted by
section 31, paragraph (c) of Republic Act No. 521; and
4. The Tax Court erred in denying petitioner's motion for reconsideration.
Respondents contend that said equipments, tho movable, are immobilized by destination, in
accordance with paragraph 5 of Article 415 of the New Civil Code which provides:
Art. 415. The following are immovable properties:
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for
an industry or works which may be carried on in a building or on a piece of land, and which tend
directly to meet the needs of the said industry or works. (Emphasis ours.)
Note that the stipulation expressly states that the equipment are placed on wooden or cement
platforms. They can be moved around and about in petitioner's repair shop. In the case of B. H.
Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the Supreme Court said:
Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the character of real property to
"machinery, liquid containers, instruments or implements intended by the owner of any building or
land for use in connection with any industry or trade being carried on therein and which are
expressly adapted to meet the requirements of such trade or industry."
If the installation of the machinery and equipment in question in the central of the Mabalacat
Sugar Co., Inc., in lieu of the other of less capacity existing therein, for its sugar and industry,
converted them into real property by reason of their purpose, it cannot be said that their
incorporation therewith was not permanent in character because, as essential and principle
elements of a sugar central, without them the sugar central would be unable to function or carry
on the industrial purpose for which it was established. Inasmuch as the central is permanent in
character, the necessary machinery and equipment installed for carrying on the sugar industry for
which it has been established must necessarily be permanent. (Emphasis ours.)
So that movable equipments to be immobilized in contemplation of the law must first be "essential
and principal elements" of an industry or works without which such industry or works would be
"unable to function or carry on the industrial purpose for which it was established." We may here
distinguish, therefore, those movable which become immobilized by destination because they are
essential and principal elements in the industry for those which may not be so considered
immobilized because they are merely incidental, not essential and principal. Thus, cash registers,
typewriters, etc., usually found and used in hotels, restaurants, theaters, etc. are merely
incidentals and are not and should not be considered immobilized by destination, for these
businesses can continue or carry on their functions without these equity comments. Airline
companies use forklifts, jeep-wagons, pressure pumps, IBM machines, etc. which are incidentals,
not essentials, and thus retain their movable nature. On the other hand, machineries of breweries
used in the manufacture of liquor and soft drinks, though movable in nature, are immobilized
because they are essential to said industries; but the delivery trucks and adding machines which
they usually own and use and are found within their industrial compounds are merely incidental
and retain their movable nature.
Similarly, the tools and equipments in question in this instant case are, by their nature, not
essential and principle municipal elements of petitioner's business of transporting passengers and
cargoes by motor trucks. They are merely incidentals acquired as movables and used only for
expediency to facilitate and/or improve its service. Even without such tools and equipments, its
business may be carried on, as petitioner has carried on, without such equipments, before the
war. The transportation business could be carried on without the repair or service shop if its rolling
equipment is repaired or serviced in another shop belonging to another.
The law that governs the determination of the question at issue is as follows:
Art. 415. The following are immovable property:
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for
an industry or works which may be carried on in a building or on a piece of land, and which tend
directly to meet the needs of the said industry or works; (Civil Code of the Phil.)
Aside from the element of essentiality the above-quoted provision also requires that the industry
or works be carried on in a building or on a piece of land. Thus in the case of Berkenkotter vs. Cu
Unjieng, supra, the "machinery, liquid containers, and instruments or implements" are found in a
building constructed on the land. A sawmill would also be installed in a building on land more or
less permanently, and the sawing is conducted in the land or building.
But in the case at bar the equipments in question are destined only to repair or service the
transportation business, which is not carried on in a building or permanently on a piece of land, as
demanded by the law. Said equipments may not, therefore, be deemed real property.
Resuming what we have set forth above, we hold that the equipments in question are not
absolutely essential to the petitioner's transportation business, and petitioner's business is not
carried on in a building, tenement or on a specified land, so said equipment may not be
considered real estate within the meaning of Article 415 (c) of the Civil Code.
WHEREFORE, the decision subject of the petition for review is hereby set aside and the
equipment in question declared not subject to assessment as real estate for the purposes of the
real estate tax. Without costs.
G.R. No. L-58469 May 16, 1983
MAKATI LEASING and FINANCE CORPORATION, petitioner,
vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS, respondents.
Loreto C. Baduan for petitioner.
Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.
Jose V. Mancella for respondent.
DE CASTRO, J.:
Petition for review on certiorari of the decision of the Court of Appeals (now Intermediate
Appellate Court) promulgated on August 27, 1981 in CA-G.R. No. SP-12731, setting aside certain
Orders later specified herein, of Judge Ricardo J. Francisco, as Presiding Judge of the Court of
First instance of Rizal Branch VI, issued in Civil Case No. 36040, as wen as the resolution dated
September 22, 1981 of the said appellate court, denying petitioner's motion for reconsideration.
It appears that in order to obtain financial accommodations from herein petitioner Makati Leasing
and Finance Corporation, the private respondent Wearever Textile Mills, Inc., discounted and
assigned several receivables with the former under a Receivable Purchase Agreement. To secure
the collection of the receivables assigned, private respondent executed a Chattel Mortgage over
certain raw materials inventory as well as a machinery described as an Artos Aero Dryer
Stentering Range.
Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of the
properties mortgage to it. However, the Deputy Sheriff assigned to implement the foreclosure
failed to gain entry into private respondent's premises and was not able to effect the seizure of the
aforedescribed machinery. Petitioner thereafter filed a complaint for judicial foreclosure with the
Court of First Instance of Rizal, Branch VI, docketed as Civil Case No. 36040, the case before the
lower court.
Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the
enforcement of which was however subsequently restrained upon private respondent's filing of a
motion for reconsideration. After several incidents, the lower court finally issued on February 11,
1981, an order lifting the restraining order for the enforcement of the writ of seizure and an order
to break open the premises of private respondent to enforce said writ. The lower court reaffirmed
its stand upon private respondent's filing of a further motion for reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of private
respondent and removed the main drive motor of the subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein
private respondent, set aside the Orders of the lower court and ordered the return of the drive
motor seized by the sheriff pursuant to said Orders, after ruling that the machinery in suit cannot
be the subject of replevin, much less of a chattel mortgage, because it is a real property pursuant
to Article 415 of the new Civil Code, the same being attached to the ground by means of bolts and
the only way to remove it from respondent's plant would be to drill out or destroy the concrete
floor, the reason why all that the sheriff could do to enfore the writ was to take the main drive
motor of said machinery. The appellate court rejected petitioner's argument that private
respondent is estopped from claiming that the machine is real property by constituting a chattel
mortgage thereon.
A motion for reconsideration of this decision of the Court of Appeals having been denied,
petitioner has brought the case to this Court for review by writ of certiorari. It is contended by
private respondent, however, that the instant petition was rendered moot and academic by
petitioner's act of returning the subject motor drive of respondent's machinery after the Court of
Appeals' decision was promulgated.
The contention of private respondent is without merit. When petitioner returned the subject motor
drive, it made itself unequivocably clear that said action was without prejudice to a motion for
reconsideration of the Court of Appeals decision, as shown by the receipt duly signed by
respondent's representative. 1 Considering that petitioner has reserved its right to question the
propriety of the Court of Appeals' decision, the contention of private respondent that this petition
has been mooted by such return may not be sustained.
The next and the more crucial question to be resolved in this Petition is whether the machinery in
suit is real or personal property from the point of view of the parties, with petitioner arguing that it
is a personality, while the respondent claiming the contrary, and was sustained by the appellate
court, which accordingly held that the chattel mortgage constituted thereon is null and void, as
contended by said respondent.
A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where this Court,
speaking through Justice J.B.L. Reyes, ruled:
Although there is no specific statement referring to the subject house as personal property, yet by
ceding, selling or transferring a property by way of chattel mortgage defendants-appellants could
only have meant to convey the house as chattel, or at least, intended to treat the same as such,
so that they should not now be allowed to make an inconsistent stand by claiming otherwise.
Moreover, the subject house stood on a rented lot to which defendants-appellants merely had a
temporary right as lessee, and although this can not in itself alone determine the status of the
property, it does so when combined with other factors to sustain the interpretation that the parties,
particularly the mortgagors, intended to treat the house as personality. Finally, unlike in the Iya
cases, Lopez vs. Orosa, Jr. & Plaza Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery &
Williamson, wherein third persons assailed the validity of the chattel mortgage, it is the
defendants-appellants themselves, as debtors-mortgagors, who are attacking the validity of the
chattel mortgage in this case. The doctrine of estoppel therefore applies to the herein defendants-
appellants, having treated the subject house as personality.
Examining the records of the instant case, We find no logical justification to exclude the rule out,
as the appellate court did, the present case from the application of the abovequoted
pronouncement. If a house of strong materials, like what was involved in the above Tumalad
case, may be considered as personal property for purposes of executing a chattel mortgage
thereon as long as the parties to the contract so agree and no innocent third party will be
prejudiced thereby, there is absolutely no reason why a machinery, which is movable in its nature
and becomes immobilized only by destination or purpose, may not be likewise treated as such.
This is really because one who has so agreed is estopped from denying the existence of the
chattel mortgage.
In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of Appeals
lays stress on the fact that the house involved therein was built on a land that did not belong to
the owner of such house. But the law makes no distinction with respect to the ownership of the
land on which the house is built and We should not lay down distinctions not contemplated by law.
It must be pointed out that the characterization of the subject machinery as chattel by the private
respondent is indicative of intention and impresses upon the property the character determined by
the parties. As stated in Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable
that the parties to a contract may by agreement treat as personal property that which by nature
would be real property, as long as no interest of third parties would be prejudiced thereby.
Private respondent contends that estoppel cannot apply against it because it had never
represented nor agreed that the machinery in suit be considered as personal property but was
merely required and dictated on by herein petitioner to sign a printed form of chattel mortgage
which was in a blank form at the time of signing. This contention lacks persuasiveness. As aptly
pointed out by petitioner and not denied by the respondent, the status of the subject machinery as
movable or immovable was never placed in issue before the lower court and the Court of Appeals
except in a supplemental memorandum in support of the petition filed in the appellate court.
Moreover, even granting that the charge is true, such fact alone does not render a contract void
ab initio, but can only be a ground for rendering said contract voidable, or annullable pursuant to
Article 1390 of the new Civil Code, by a proper action in court. There is nothing on record to show
that the mortgage has been annulled. Neither is it disclosed that steps were taken to nullify the
same. On the other hand, as pointed out by petitioner and again not refuted by respondent, the
latter has indubitably benefited from said contract. Equity dictates that one should not benefit at
the expense of another. Private respondent could not now therefore, be allowed to impugn the
efficacy of the chattel mortgage after it has benefited therefrom,
From what has been said above, the error of the appellate court in ruling that the questioned
machinery is real, not personal property, becomes very apparent. Moreover, the case of
Machinery and Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by said court is
not applicable to the case at bar, the nature of the machinery and equipment involved therein as
real properties never having been disputed nor in issue, and they were not the subject of a
Chattel Mortgage. Undoubtedly, the Tumalad case bears more nearly perfect parity with the
instant case to be the more controlling jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby
reversed and set aside, and the Orders of the lower court are hereby reinstated, with costs
against the private respondent.
G.R. No. L-50466 May 31, 1982
CALTEX (PHILIPPINES) INC., petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and CITY ASSESSOR OF PASAY,
respondents.
AQUINO, J.:
This case is about the realty tax on machinery and equipment installed by Caltex (Philippines)
Inc. in its gas stations located on leased land.
The machines and equipment consists of underground tanks, elevated tank, elevated water
tanks, water tanks, gasoline pumps, computing pumps, water pumps, car washer, car hoists,
truck hoists, air compressors and tireflators. The city assessor described the said equipment and
machinery in this manner:
A gasoline service station is a piece of lot where a building or shed is erected, a water tank if
there is any is placed in one corner of the lot, car hoists are placed in an adjacent shed, an air
compressor is attached in the wall of the shed or at the concrete wall fence.
The controversial underground tank, depository of gasoline or crude oil, is dug deep about six feet
more or less, a few meters away from the shed. This is done to prevent conflagration because
gasoline and other combustible oil are very inflammable.
This underground tank is connected with a steel pipe to the gasoline pump and the gasoline
pump is commonly placed or constructed under the shed. The footing of the pump is a cement
pad and this cement pad is imbedded in the pavement under the shed, and evidence that the
gasoline underground tank is attached and connected to the shed or building through the pipe to
the pump and the pump is attached and affixed to the cement pad and pavement covered by the
roof of the building or shed.
The building or shed, the elevated water tank, the car hoist under a separate shed, the air
compressor, the underground gasoline tank, neon lights signboard, concrete fence and pavement
and the lot where they are all placed or erected, all of them used in the pursuance of the gasoline
service station business formed the entire gasoline service-station.
As to whether the subject properties are attached and affixed to the tenement, it is clear they are,
for the tenement we consider in this particular case are (is) the pavement covering the entire lot
which was constructed by the owner of the gasoline station and the improvement which holds all
the properties under question, they are attached and affixed to the pavement and to the
improvement.
The pavement covering the entire lot of the gasoline service station, as well as all the
improvements, machines, equipments and apparatus are allowed by Caltex (Philippines) Inc. ...
The underground gasoline tank is attached to the shed by the steel pipe to the pump, so with the
water tank it is connected also by a steel pipe to the pavement, then to the electric motor which
electric motor is placed under the shed. So to say that the gasoline pumps, water pumps and
underground tanks are outside of the service station, and to consider only the building as the
service station is grossly erroneous. (pp. 58-60, Rollo).
The said machines and equipment are loaned by Caltex to gas station operators under an
appropriate lease agreement or receipt. It is stipulated in the lease contract that the operators,
upon demand, shall return to Caltex the machines and equipment in good condition as when
received, ordinary wear and tear excepted.
The lessor of the land, where the gas station is located, does not become the owner of the
machines and equipment installed therein. Caltex retains the ownership thereof during the term of
the lease.
The city assessor of Pasay City characterized the said items of gas station equipment and
machinery as taxable realty. The realty tax on said equipment amounts to P4,541.10 annually (p.
52, Rollo). The city board of tax appeals ruled that they are personalty. The assessor appealed to
the Central Board of Assessment Appeals.
The Board, which was composed of Secretary of Finance Cesar Virata as chairman, Acting
Secretary of Justice Catalino Macaraig, Jr. and Secretary of Local Government and Community
Development Jose Roo, held in its decision of June 3, 1977 that the said machines and
equipment are real property within the meaning of sections 3(k) & (m) and 38 of the Real Property
Tax Code, Presidential Decree No. 464, which took effect on June 1, 1974, and that the
definitions of real property and personal property in articles 415 and 416 of the Civil Code are not
applicable to this case.
The decision was reiterated by the Board (Minister Vicente Abad Santos took Macaraig's place) in
its resolution of January 12, 1978, denying Caltex's motion for reconsideration, a copy of which
was received by its lawyer on April 2, 1979.
On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the setting aside of the
Board's decision and for a declaration that t he said machines and equipment are personal
property not subject to realty tax (p. 16, Rollo).
The Solicitor General's contention that the Court of Tax Appeals has exclusive appellate
jurisdiction over this case is not correct. When Republic act No. 1125 created the Tax Court in
1954, there was as yet no Central Board of Assessment Appeals. Section 7(3) of that law in
providing that the Tax Court had jurisdiction to review by appeal decisions of provincial or city
boards of assessment appeals had in mind the local boards of assessment appeals but not the
Central Board of Assessment Appeals which under the Real Property Tax Code has appellate
jurisdiction over decisions of the said local boards of assessment appeals and is, therefore, in the
same category as the Tax Court.
Section 36 of the Real Property Tax Code provides that the decision of the Central Board of
Assessment Appeals shall become final and executory after the lapse of fifteen days from the
receipt of its decision by the appellant. Within that fifteen-day period, a petition for reconsideration
may be filed. The Code does not provide for the review of the Board's decision by this Court.
Consequently, the only remedy available for seeking a review by this Court of the decision of the
Central Board of Assessment Appeals is the special civil action of certiorari, the recourse resorted
to herein by Caltex (Philippines), Inc.
The issue is whether the pieces of gas station equipment and machinery already enumerated are
subject to realty tax. This issue has to be resolved primarily under the provisions of the
Assessment Law and the Real Property Tax Code.
Section 2 of the Assessment Law provides that the realty tax is due "on real property, including
land, buildings, machinery, and other improvements" not specifically exempted in section 3
thereof. This provision is reproduced with some modification in the Real Property Tax Code which
provides:
SEC. 38. Incidence of Real Property Tax. There shall be levied, assessed and collected in all
provinces, cities and municipalities an annual ad valorem tax on real property, such as land,
buildings, machinery and other improvements affixed or attached to real property not hereinafter
specifically exempted.
The Code contains the following definitions in its section 3:
k) Improvements is a valuable addition made to property or an amelioration in its condition,
amounting to more than mere repairs or replacement of waste, costing labor or capital and
intended to enhance its value, beauty or utility or to adapt it for new or further purposes.
m) Machinery shall embrace machines, mechanical contrivances, instruments, appliances and
apparatus attached to the real estate. It includes the physical facilities available for production, as
well as the installations and appurtenant service facilities, together with all other equipment
designed for or essential to its manufacturing, industrial or agricultural purposes (See sec. 3[f],
Assessment Law).
We hold that the said equipment and machinery, as appurtenances to the gas station building or
shed owned by Caltex (as to which it is subject to realty tax) and which fixtures are necessary to
the operation of the gas station, for without them the gas station would be useless, and which
have been attached or affixed permanently to the gas station site or embedded therein, are
taxable improvements and machinery within the meaning of the Assessment Law and the Real
Property Tax Code.
Caltex invokes the rule that machinery which is movable in its nature only becomes immobilized
when placed in a plant by the owner of the property or plant but not when so placed by a tenant, a
usufructuary, or any person having only a temporary right, unless such person acted as the agent
of the owner (Davao Saw Mill Co. vs. Castillo, 61 Phil 709).
That ruling is an interpretation of paragraph 5 of article 415 of the Civil Code regarding machinery
that becomes real property by destination. In the Davao Saw Mills case the question was whether
the machinery mounted on foundations of cement and installed by the lessee on leased land
should be regarded as real property for purposes of execution of a judgment against the lessee.
The sheriff treated the machinery as personal property. This Court sustained the sheriff's action.
(Compare with Machinery & Engineering Supplies, Inc. vs. Court of Appeals, 96 Phil. 70, where in
a replevin case machinery was treated as realty).
Here, the question is whether the gas station equipment and machinery permanently affixed by
Caltex to its gas station and pavement (which are indubitably taxable realty) should be subject to
the realty tax. This question is different from the issue raised in the Davao Saw Mill case.
Improvements on land are commonly taxed as realty even though for some purposes they might
be considered personalty (84 C.J.S. 181-2, Notes 40 and 41). "It is a familiar phenomenon to see
things classed as real property for purposes of taxation which on general principle might be
considered personal property" (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633).
This case is also easily distinguishable from Board of Assessment Appeals vs. Manila Electric
Co., 119 Phil. 328, where Meralco's steel towers were considered poles within the meaning of
paragraph 9 of its franchise which exempts its poles from taxation. The steel towers were
considered personalty because they were attached to square metal frames by means of bolts and
could be moved from place to place when unscrewed and dismantled.
Nor are Caltex's gas station equipment and machinery the same as tools and equipment in the
repair shop of a bus company which were held to be personal property not subject to realty tax
(Mindanao Bus Co. vs. City Assessor, 116 Phil. 501).
The Central Board of Assessment Appeals did not commit a grave abuse of discretion in
upholding the city assessor's is imposition of the realty tax on Caltex's gas station and equipment.
WHEREFORE, the questioned decision and resolution of the Central Board of Assessment
Appeals are affirmed. The petition for certiorari is dismissed for lack of merit. No costs.
G.R. No. L-15334 January 31, 1964
BOARD OF ASSESSMENT APPEALS, CITY ASSESSOR and CITY TREASURER OF
QUEZON CITY, petitioners,
vs.
MANILA ELECTRIC COMPANY, respondent.
Assistant City Attorney Jaime R. Agloro for petitioners.
Ross, Selph and Carrascoso for respondent.
PAREDES, J.:
From the stipulation of facts and evidence adduced during the hearing, the following appear:
On October 20, 1902, the Philippine Commission enacted Act No. 484 which authorized the
Municipal Board of Manila to grant a franchise to construct, maintain and operate an electric
street railway and electric light, heat and power system in the City of Manila and its suburbs to the
person or persons making the most favorable bid. Charles M. Swift was awarded the said
franchise on March 1903, the terms and conditions of which were embodied in Ordinance No. 44
approved on March 24, 1903. Respondent Manila Electric Co. (Meralco for short), became the
transferee and owner of the franchise.
Meralco's electric power is generated by its hydro-electric plant located at Botocan Falls, Laguna
and is transmitted to the City of Manila by means of electric transmission wires, running from the
province of Laguna to the said City. These electric transmission wires which carry high voltage
current, are fastened to insulators attached on steel towers constructed by respondent at
intervals, from its hydro-electric plant in the province of Laguna to the City of Manila. The
respondent Meralco has constructed 40 of these steel towers within Quezon City, on land
belonging to it. A photograph of one of these steel towers is attached to the petition for review,
marked Annex A. Three steel towers were inspected by the lower court and parties and the
following were the descriptions given there of by said court:
The first steel tower is located in South Tatalon, Espaa Extension, Quezon City. The findings
were as follows: the ground around one of the four posts was excavated to a depth of about eight
(8) feet, with an opening of about one (1) meter in diameter, decreased to about a quarter of a
meter as it we deeper until it reached the bottom of the post; at the bottom of the post were two
parallel steel bars attached to the leg means of bolts; the tower proper was attached to the leg
three bolts; with two cross metals to prevent mobility; there was no concrete foundation but there
was adobe stone underneath; as the bottom of the excavation was covered with water about
three inches high, it could not be determined with certainty to whether said adobe stone was
placed purposely or not, as the place abounds with this kind of stone; and the tower carried five
high voltage wires without cover or any insulating materials.
The second tower inspected was located in Kamuning Road, K-F, Quezon City, on land owned by
the petitioner approximate more than one kilometer from the first tower. As in the first tower, the
ground around one of the four legs was excavate from seven to eight (8) feet deep and one and a
half (1-) meters wide. There being very little water at the bottom, it was seen that there was no
concrete foundation, but there soft adobe beneath. The leg was likewise provided with two
parallel steel bars bolted to a square metal frame also bolted to each corner. Like the first one, the
second tower is made up of metal rods joined together by means of bolts, so that by unscrewing
the bolts, the tower could be dismantled and reassembled.
The third tower examined is located along Kamias Road, Quezon City. As in the first two towers
given above, the ground around the two legs of the third tower was excavated to a depth about
two or three inches beyond the outside level of the steel bar foundation. It was found that there
was no concrete foundation. Like the two previous ones, the bottom arrangement of the legs
thereof were found to be resting on soft adobe, which, probably due to high humidity, looks like
mud or clay. It was also found that the square metal frame supporting the legs were not attached
to any material or foundation.
On November 15, 1955, petitioner City Assessor of Quezon City declared the aforesaid steel
towers for real property tax under Tax declaration Nos. 31992 and 15549. After denying
respondent's petition to cancel these declarations, an appeal was taken by respondent to the
Board of Assessment Appeals of Quezon City, which required respondent to pay the amount of
P11,651.86 as real property tax on the said steel towers for the years 1952 to 1956. Respondent
paid the amount under protest, and filed a petition for review in the Court of Tax Appeals (CTA for
short) which rendered a decision on December 29, 1958, ordering the cancellation of the said tax
declarations and the petitioner City Treasurer of Quezon City to refund to the respondent the sum
of P11,651.86. The motion for reconsideration having been denied, on April 22, 1959, the instant
petition for review was filed.
In upholding the cause of respondents, the CTA held that: (1) the steel towers come within the
term "poles" which are declared exempt from taxes under part II paragraph 9 of respondent's
franchise; (2) the steel towers are personal properties and are not subject to real property tax;
and (3) the City Treasurer of Quezon City is held responsible for the refund of the amount paid.
These are assigned as errors by the petitioner in the brief.
The tax exemption privilege of the petitioner is quoted hereunder:
PAR 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings, plant (not
including poles, wires, transformers, and insulators), machinery and personal property as other
persons are or may be hereafter required by law to pay ... Said percentage shall be due and
payable at the time stated in paragraph nineteen of Part One hereof, ... and shall be in lieu of all
taxes and assessments of whatsoever nature and by whatsoever authority upon the privileges,
earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee from
which taxes and assessments the grantee is hereby expressly exempted. (Par. 9, Part Two, Act
No. 484 Respondent's Franchise; emphasis supplied.)
The word "pole" means "a long, comparatively slender usually cylindrical piece of wood or timber,
as typically the stem of a small tree stripped of its branches; also by extension, a similar typically
cylindrical piece or object of metal or the like". The term also refers to "an upright standard to the
top of which something is affixed or by which something is supported; as a dovecote set on a
pole; telegraph poles; a tent pole; sometimes, specifically a vessel's master (Webster's New
International Dictionary 2nd Ed., p. 1907.) Along the streets, in the City of Manila, may be seen
cylindrical metal poles, cubical concrete poles, and poles of the PLDT Co. which are made of two
steel bars joined together by an interlacing metal rod. They are called "poles" notwithstanding the
fact that they are no made of wood. It must be noted from paragraph 9, above quoted, that the
concept of the "poles" for which exemption is granted, is not determined by their place or location,
nor by the character of the electric current it carries, nor the material or form of which it is made,
but the use to which they are dedicated. In accordance with the definitions, pole is not restricted
to a long cylindrical piece of wood or metal, but includes "upright standards to the top of which
something is affixed or by which something is supported. As heretofore described, respondent's
steel supports consists of a framework of four steel bars or strips which are bound by steel cross-
arms atop of which are cross-arms supporting five high voltage transmission wires (See Annex A)
and their sole function is to support or carry such wires.
The conclusion of the CTA that the steel supports in question are embraced in the term "poles" is
not a novelty. Several courts of last resort in the United States have called these steel supports
"steel towers", and they denominated these supports or towers, as electric poles. In their
decisions the words "towers" and "poles" were used interchangeably, and it is well understood in
that jurisdiction that a transmission tower or pole means the same thing.
In a proceeding to condemn land for the use of electric power wires, in which the law provided
that wires shall be constructed upon suitable poles, this term was construed to mean either wood
or metal poles and in view of the land being subject to overflow, and the necessary carrying of
numerous wires and the distance between poles, the statute was interpreted to include towers or
poles. (Stemmons and Dallas Light Co. (Tex) 212 S.W. 222, 224; 32-A Words and Phrases, p.
365.)
The term "poles" was also used to denominate the steel supports or towers used by an
association used to convey its electric power furnished to subscribers and members, constructed
for the purpose of fastening high voltage and dangerous electric wires alongside public highways.
The steel supports or towers were made of iron or other metals consisting of two pieces running
from the ground up some thirty feet high, being wider at the bottom than at the top, the said two
metal pieces being connected with criss-cross iron running from the bottom to the top,
constructed like ladders and loaded with high voltage electricity. In form and structure, they are
like the steel towers in question. (Salt River Valley Users' Ass'n v. Compton, 8 P. 2nd, 249-250.)
The term "poles" was used to denote the steel towers of an electric company engaged in the
generation of hydro-electric power generated from its plant to the Tower of Oxford and City of
Waterbury. These steel towers are about 15 feet square at the base and extended to a height of
about 35 feet to a point, and are embedded in the cement foundations sunk in the earth, the top
of which extends above the surface of the soil in the tower of Oxford, and to the towers are
attached insulators, arms, and other equipment capable of carrying wires for the transmission of
electric power (Connecticut Light and Power Co. v. Oxford, 101 Conn. 383, 126 Atl. p. 1).
In a case, the defendant admitted that the structure on which a certain person met his death was
built for the purpose of supporting a transmission wire used for carrying high-tension electric
power, but claimed that the steel towers on which it is carried were so large that their wire took
their structure out of the definition of a pole line. It was held that in defining the word pole, one
should not be governed by the wire or material of the support used, but was considering the
danger from any elevated wire carrying electric current, and that regardless of the size or material
wire of its individual members, any continuous series of structures intended and used solely or
primarily for the purpose of supporting wires carrying electric currents is a pole line (Inspiration
Consolidation Cooper Co. v. Bryan 252 P. 1016).
It is evident, therefore, that the word "poles", as used in Act No. 484 and incorporated in the
petitioner's franchise, should not be given a restrictive and narrow interpretation, as to defeat the
very object for which the franchise was granted. The poles as contemplated thereon, should be
understood and taken as a part of the electric power system of the respondent Meralco, for the
conveyance of electric current from the source thereof to its consumers. If the respondent would
be required to employ "wooden poles", or "rounded poles" as it used to do fifty years back, then
one should admit that the Philippines is one century behind the age of space. It should also be
conceded by now that steel towers, like the ones in question, for obvious reasons, can better
effectuate the purpose for which the respondent's franchise was granted.
Granting for the purpose of argument that the steel supports or towers in question are not
embraced within the term poles, the logical question posited is whether they constitute real
properties, so that they can be subject to a real property tax. The tax law does not provide for a
definition of real property; but Article 415 of the Civil Code does, by stating the following are
immovable property:
(1) Land, buildings, roads, and constructions of all kinds adhered to the soil;
xxx xxx xxx
(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be
separated therefrom without breaking the material or deterioration of the object;
xxx xxx xxx
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for
an industry or works which may be carried in a building or on a piece of land, and which tends
directly to meet the needs of the said industry or works;
xxx xxx xxx
The steel towers or supports in question, do not come within the objects mentioned in paragraph
1, because they do not constitute buildings or constructions adhered to the soil. They are not
construction analogous to buildings nor adhering to the soil. As per description, given by the lower
court, they are removable and merely attached to a square metal frame by means of bolts, which
when unscrewed could easily be dismantled and moved from place to place. They can not be
included under paragraph 3, as they are not attached to an immovable in a fixed manner, and
they can be separated without breaking the material or causing deterioration upon the object to
which they are attached. Each of these steel towers or supports consists of steel bars or metal
strips, joined together by means of bolts, which can be disassembled by unscrewing the bolts and
reassembled by screwing the same. These steel towers or supports do not also fall under
paragraph 5, for they are not machineries, receptacles, instruments or implements, and even if
they were, they are not intended for industry or works on the land. Petitioner is not engaged in an
industry or works in the land in which the steel supports or towers are constructed.
It is finally contended that the CTA erred in ordering the City Treasurer of Quezon City to refund
the sum of P11,651.86, despite the fact that Quezon City is not a party to the case. It is argued
that as the City Treasurer is not the real party in interest, but Quezon City, which was not a party
to the suit, notwithstanding its capacity to sue and be sued, he should not be ordered to effect the
refund. This question has not been raised in the court below, and, therefore, it cannot be properly
raised for the first time on appeal. The herein petitioner is indulging in legal technicalities and
niceties which do not help him any; for factually, it was he (City Treasurer) whom had insisted that
respondent herein pay the real estate taxes, which respondent paid under protest. Having acted
in his official capacity as City Treasurer of Quezon City, he would surely know what to do, under
the circumstances.
IN VIEW HEREOF, the decision appealed from is hereby affirmed, with costs against the
petitioners.